ACCT 103 Lecture Notes - Lecture 28: Saber Of London, Income Statement, Financial Statement
2 Oct 2020
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Financial statement effects and tax effects of cost flow methods. They can also use more than one at the same time. Companies adopt different cost flow methods for various reasons, usually one of these factors is involved: Income statement effects - if you compare is under 3 methods will find that in period of rising prices fifo produces higher ni and lifo the lowest. To management of the company, high income is good, causes outsiders to view company more favorably. Also if bonuses based on ni the higher the ni = higher bonuses. Some argue that lifo gives more realistic income because current revenues matched with current cost of inventory: balance sheet effects advantage of fifo is that it shows current cost in ei. Lifo results in the lowest taxes during times of rising prices. Whatever cost flow method a company chooses it should be used consistently. Although consistent application is preferred a company may change its methods.
